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Sabtu, 11 Juni 2011

After Nuclear Crisis, Japan’s Biggest Utility Faces Insolvency Risk

Far away from the battle to contain the nuclear crisis at the Fukushima Daiichi nuclear power plant, investors are increasingly edgy about a related issue: the fate of Tokyo Electric Power, the stricken plant’s operator.

On Thursday, shares in Tokyo Electric again fell to a record low, at one point slumping to 148 yen ($1.85), down 93 percent from prequake levels. Shares finished at 192 yen ($2.40), down 4 percent from the previous day, and the company already had a 1.25 trillion yen loss in the year ending March 31, the largest annual loss for a nonfinancial institution in Japanese history.

The physical damage from the accident at the Fukushima Daiichi nuclear power plant has been so widespread that even conservative estimates of compensation claims amount to tens of billions of dollars — a burden that could render Japan’s largest utility insolvent.

In the early days of the disaster, even while hydrogen explosions continued to rock the nuclear plant, the collapse of Tokyo Electric was thought highly unlikely. Despite the catastrophe, analysts said, the government would not allow the failure of Tokyo’s sole electricity supplier. Because the effect of such a collapse on credit and stock markets would be catastrophic, they said, surely the government would cap compensation claims, or step in to provide other support.

And banks were so certain of this that they agreed, in early April, to lend almost 2 trillion yen ($25 billion) to the struggling utility company. In the eyes of the market, Tokyo Electric was too big to fail.

Now, three months later, the market is not so sure.

“Investors used to think, ‘This is a utility. What’s the government going to do, let it fail and let Tokyo go without power?’ ” said Yasuhide Yajima, the senior economist at the NLI Research Institute, an arm of Nippon Life Insurance. “But now their confidence is completely shaken,” he said. “They’re racing to offload their holdings before the share price hits zero.”

One cause for concern, analysts say, is the inability of a gridlocked government to complete a financial rescue plan for Tokyo Electric. To appease public anger over the disaster, the government has vowed to hold Tokyo Electric fully liable for the compensation claims that are likely to roll in from farmers, fishermen and others whose livelihoods have been disrupted in the crisis.

A government plan drawn up last month places no limit on the company’s liabilities, even though Japanese law would allow for such a cap following natural disasters. But the plan, which must still be approved by a divided Parliament, also calls for a fund that would use taxpayer money to help Tokyo Electric compensate victims and continue to provide Tokyo with power, while avoiding insolvency. Under the plan, the company will eventually pay back the fund in full.

The problem, analysts say, is that it is virtually impossible to know how large those claims could eventually be — and whether the government would have the means and commitment to cover them.

In a recent estimate, Shigeki Matsumoto, an analyst at Nomura Securities, predicted the total would come to around 5 trillion yen ($64 billion), including 3.2 trillion to 3.3 trillion yen ($40 billion to $41.2 billion) in payout to farmers and fishermen — two years’ worth of agricultural and fisheries output in the plant’s vicinity. Nomura also projected 0.6 trillion yen in compensation to displaced families.

A Bank of America-Merrill Lynch estimate puts the sum as high as $130 billion. (By comparison: BP’s compensation fund for the Gulf of Mexico oil spill is $20 billion. )